The Economic Recovery Is Finally Bringing Pay Raises

It may be too late to affect Tuesday’s election, but the economy is finally delivering real wage growth to American workers.

The average U.S. employee earned $25.92 an hour in October, the Bureau of Labor Statistics reported Friday. That’s up 2.8 percent from a year earlier, the fastest growth since 2009. Non-managers — what the BLS calls “production and non-supervisory employees” — saw their earnings rise a more modest 2.4 percent, but they too are seeing gains that are running well ahead of inflation.

The strong earnings figures were the highlight of a jobs report — the last major set of economic data before Election Day — that was otherwise solid but not spectacular. U.S. employers added 161,000 jobs in October, a bit below economists’ expectations, but that disappointment was largely offset by upward revisions to August and September’s jobs figures by a combined 44,000 jobs. The unemployment rate, which had risen to 5 percent in September, ticked back down to 4.9 percent.

Taken together, the figures suggest that the long, slow recovery in the job market is moving into a new phase: from job growth to wage growth. For much of the past seven years, economists have focused on putting back to work the millions of Americans who lost jobs during the recession. That process isn’t complete — there are still close to 8 million unemployed Americans and millions more who would like jobs but don’t count as unemployed — but the economy is closer to a healthy level of employment than it has been in years. Hiring is starting to slow: Employers are adding jobs at a pace of about 2.4 million a year, down from more than 3 million in early 2015.

Slower hiring could actually be good news for workers. For much of the recovery, there were far more unemployed workers than available jobs, giving employers little incentive to raise wages. But now, with fewer people out of work, companies are being forced to work harder and pay more to attract and retain talent, and wages are finally rising. Average hourly earnings is a crude measure of compensation, just the total amount workers were paid divided by the number of hours they worked. It doesn’t include the value of benefits or take into account which industries are hiring. But more sophisticated measures that do take such factors into account also show workers making strong gains. And overall household income, which lagged for much of the recovery, rose at the fastest pace on record in 2015.

Rising pay and falling unemployment are good news for Hillary Clinton, who has been happy to tie herself to President Obama’s economic legacy. But Friday’s report still had nuggets for Donald Trump as well, such as slowing job growth, particularly in the private sector, and a shrinking labor force. And although overall economic growth picked up in the third quarter of the year, the recovery as a whole remains historically weak. FiveThirtyEight’s forecasting model considers the economy a more or less neutral factor in the presidential race; strong wage growth in October isn’t likely to change many voters’ minds.

Here are a few more observations from Friday’s report:

Unemployment is down for “bad” reasons: The government counts people as unemployed only if they are actively looking for work. That means the unemployment rate can fall for both good reasons (more people found jobs) and bad ones (more people stopped looking). In October, the unemployment rate fell for bad reasons. The labor-force participation rate — the share of adults either working or actively looking for work — fell by a tenth of a percentage point. But it’s wise not to fixate on month-to-month changes in either unemployment or the participation rate, both of which can be volatile. Over the slightly longer run, the unemployment rate has fallen significantly — it was 7.2 percent three years ago — and the participation rate, which fell through the recession and much of the recovery, is showing signs of a modest rebound. Perhaps more significantly, the share of so-called prime-age adults who are working — those ages 25 to 54 — is now the highest it has been since 2008.

Meanwhile, the prospects of job seekers are improving: More than one in four unemployed workers found a job in October. The so-called job-finding rate fell early this year but has since rebounded.

Good jobs, bad jobs: Job growth in October was strongest in relatively high-paying sectors. The professional and business-services sector, which pays more than $31 an hour on average, added 43,000 jobs; health care and education, which pay nearly $26 an hour on average, added 52,000. Job growth was weaker in the lower-paying leisure and hospitality sector, and employment in the retail sector was essentially flat. On the other hand, good-paying blue-collar jobs were scarce in October: The manufacturing and mining industries cut jobs, and construction companies added a relatively paltry 11,000 jobs.

Most of the employment gains over the past year have been in full-time work, a trend that has been consistent throughout the recovery. (The month-to-month numbers are too volatile to mean much.) But nearly 6 million Americans are working part-time because they can’t find full-time work, a figure that has stalled out over the past year.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight. @bencasselman